Sunday, November 18, 2007

The Economist's Oath (II)

In the first part of this blog post I implied that economists make 99% of their money out of one simple idea.

This isn't as fantastical as it sounds - but economists rarely let the cat out of the bag without forcing you to buy their latest book or signing you up for an undergraduate degree in economics (and even then most undergrads don't "get" it - economists are a stingy bunch).

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The one useful idea in economics is this:

"People can cooperate very successfully together, but sometimes they don't and need to be coordinated."

The "sometimes" is the contentious part. Libertarians/capitalists would tend to say that individuals cooperate well most of the time without out any outside interference and socialists would say that people mostly need to be coordinated by government.

Most economists naturally tend to fall on one or other side of the cooperation vs coordination divide without being extremists - economics is a science after all, not a dogma - so each case should be examined on its own merits regardless of one's natural inclinations.

One of the major success stories of cooperation over coordination is China since it began free market reforms in the late 1970s. The Chinese were highly coordinated beforehand, being told by a central authority where to work; how much to produce; what to buy etc. (needless to say, coordinating billions of people in such small detail can be quite tricky!). Under Deng Xiaoping they were allowed to cooperate more, each Chinese citizen was given more economic freedom.


China's free market reforms are probably the greatest single achievement of economic theory.

A looming cooperative disaster however is global warming. People don't cooperate well together when it comes to global warming because the price I pay for fuel for my car reflects the costs of production - ignoring the costs inflicted on the environment (e.g. the cost to the tourist industry in Manado because of the coral bleaching caused by global warming).

The usual coordination solution is quite simple: tax fuel so that the price reflects the estimated cost to the environment.

A slightly deeper cooperative solution may be to allow freedom of movement across all borders, i.e. remove government's "coordination" of movement.

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Now that you have a grasp of cooperation vs. coordination, there's no need to waste your money on Freakonomics II or sign up for that economics undergrad course, you're probably better off studying something more intellectually stimulating like statistics.

4 comments:

Anonymous said...

John, I am living on Bunaken Island, just off Manado, and I assure you that there has been no sign of coral bleaching in this area since I have been here, almost 8 years now.

johnorford said...

You live on Bunaken island!?!? Lucky :)

Are you sure there's been no pollution related problems with coral in manado though?

Anonymous said...

Absolutely positive about this, what we do have here at the moment are lots of "crown of thorns" (star fish that eat corals), the end result is coral that is white and thus can look as if has been bleached.
The tourism businesses around the islands and mainland are funding daily clean up of these "COTS", and we are hoping that we can limit the damage.
Unfortunately the local government does not see this as a problem they have to support financially yet.
Pollution; this is limited to the Indonesian
" Nightmare", GARBAGE and PLASTIC again there are efforts underway both by local government and NGO to try and "clean up" the area, but it seems to be mostly to ensure that Manado will look good for the World Ocean Conference to be held in 2009.
One NGO called "Mata Biru" has launched a garbage collecting catamaran boat, that patrols the island of Bunaken, collecting floating garbage, hopefully we can see a few more of these boats around here soon (I think its a first in Indonesia).
Seems also that there is, again by Mata Biru, an effort to try and convince local government to adopt
"plastax" as a possible solution to the plastic garbage problem, maybe you can let me know how this system is fairing after 6 years being used in Ireland, would be interesting to know and maybe use as support documentation at my next meeting with local government.

johnorford said...

"Plastax" has worked incredibly well in Ireland, I rarely if ever see plastic bags rolling around on the streets like tumbleweed anymore.

A pal of mine suggested that the "COTS" influx could be a result of warmer water temperatures, but I'm no expert, so I won't get into an argument about that one.

Best of luck with your efforts on keeping Bunaken beautiful! :) If you have a websiteg, I'd be happy to post up a link to it :)